Procter & Gamble (P&G) has warned it is likely to hike prices to manage the impact of US President Donald Trump’s trade tariffs.
The consumer goods giant behind Pampers, Olay and Head & Shoulders cut its sales forecast for the year, expecting it to take a hit of between US$1bn and $1.5bn from the trade war and a slowdown in consumer spending due to economic uncertainty.
"We will have to pull every lever we have in our arsenal to mitigate the impact of tariffs within our cost structure and P&L,” said P&G CFO Andre Schulten on a call discussing its third quarter financial results.
Increasing prices and cutting costs were the most likely options, but changing product formulations or sourcing raw materials from outside China were also a consideration, although Schulten noted the latter would be complex in the short term.
P&G imports raw ingredients, packaging materials and some finished products into the US from China but around 90% of products sold are produced domestically, a P&G spokesperson told Reuters.
Schulten said P&G expects a hit of $1.5bn despite China making up just 10% of imports.
President Trump is imposing tariffs of as much as 145% on goods exported from China to the US.
P&G CEO Jon Moeller said in an interview with CNBC: “We are going through all of the options that we have to make this as painless for consumers as possible.
“There will likely be [higher] pricing – tariffs are inherently inflationary – but we are also looking at sourcing options.”
Any price increases would depend on the brand, rather than a blanket approach, and would be in the next fiscal year which starts in July, he said.
P&G’s net sales fell 2% in the three months to March to $19.8bn compared to the same period last year, falling short of analysts expectations.
Organic sales, which exclude the impacts of foreign exchange and acquisitions and divestitures, were up 1% driven by higher prices.
Beauty sales grew 2% compared to the same period last year, while hair care was flat, “as increased pricing in Latin America and North America and favourable premium product mix were offset by volume declines primarily in Greater China” P&G said in a company statement.
Personal care was up in the high single-digits, driven by “innovation-driven volume growth, partially offset by negative impacts from geographic mix”
Skin care sales fell 3% “due to volume declines and unfavorable geographic mix”, partially offset by increased pricing primarily in Greater China.
Organic sales in its grooming business, which includes Gillette and Braun, increased 3% versus a year ago “behind volume growth and higher pricing primarily in Latin America, Europe and North America”
Baby, feminine and family care sales declined 1% and the fabric and homecare business was flat, while health care was down 4%.
Moeller highlighted “important points of growth” in the interview, including its baby nappy business which grew in double-digits in a declining market; and SK-II, which he noted has been a “challenging business” but grew double-digits in the quarter in China.
“We delivered modest organic sales and EPS [earnings per share] growth this quarter in a challenging and volatile consumer and geopolitical environment,” said Moeller.
“We are making appropriate adjustments to our near-term outlook to reflect underlying market conditions, while remaining confident in the longer-term growth prospects for our brands and the markets where we compete.
“We remain committed to our integrated growth strategy of a focused product portfolio of daily use categories, where performance drives brand choice, superiority – across product performance, packaging, brand communication, retail execution and consumer and customer value – productivity, constructive disruption, and an agile and accountable organisation.
“We are maintaining investments in superior innovation across price tiers to improve value for consumers and drive category growth.”
The FMCG giant now expects sales for the full year to be in line with 2024.
Previously it expected growth of between 2% and 4%.
Related content:
-
Hermès to increase US prices in response to President Trump’s tariffs
-
Foreo responds to ‘aggressive’ tariff hikes with price increase for US consumers
-
Amorepacific doubles down on US manufacturing amid Trump tariff mayhem
-
Interparfums to raise US prices by 6% to 7% amid new tariffs
- The beauty industry impact of Trump’s tariffs